Govt may utilise Rs 58,000 cr windfall from RBI to meet shortfall in taxes

The best case scenario, of all the Rs 58,000 crore being used for extra spending, is unlikely to happen, sources said
The finance ministry will wait for advance tax collections data for the July-September quarter before taking a decision on how to deploy the extra Rs 58,000 crore windfall that it will get from the Reserve Bank of India, said various sources in the government on Tuesday.

“The worst case scenario for us is that all of it will be used to make up for any tax shortfall. The more realistic scenario is that most of it will be used to cover a tax shortfall and some of it for additional expenditure,” said a senior official. 

The best case scenario, of all the Rs 58,000 crore being used for extra spending, is unlikely to happen, the person said.

If there is some money left to use for expenditure, it will be focused on capital spending in priority sectors such as roads (rural and highways), affordable housing and waterworks, in a bid to create jobs as well.

“We will wait for advance tax numbers on September 15. That will help us make a better assessment of revenue projections for the rest of the year, before any decision is taken on the extra revenue from the RBI,” a second official said.

What does come as a relief for the government now is that while earlier there were concerns that the Centre may have to go for an expenditure squeeze to meet the challenging fiscal deficit target of 3.3 per cent for the year, it can now spend according to Budgeted Estimates (BE). 

“From the point of expenditure, the government can now meet all its commitments. That is certain,” the first official said.

In spite of Finance Minister Nirmala Sitharaman’s repeated insistence that direct and indirect tax targets are achievable there is widespread concern among tax officials and experts. Analysts at Nomura, for instance, expect a shortfall in tax revenues for the current financial year 2019-20 (FY20) at Rs 1 trillion, or 0.5 per cent of gross domestic product, amid a slowing economy. 

Till mid-August, the direct tax collections have only grown by 5 per cent, as compared to the 19 per cent rise required if one compares this year’s BE with last year’s provisional actuals.

Despite a cut in projections in the Union Budget, thanks to lower-than-expected realisation, revenue is estimated to grow 25 per cent. The gross actual total (direct plus indirect) tax collection in 2018-19 fell short by Rs 1.7 trillion or 7.5 per cent of the Revised Estimates for the year.

With slowdown across consumer durables and non-durable segments, tax officials appear less confident of achieving the target this year. 

The government is expecting a tax buoyancy rate of 1.2 in direct taxes, which means that if the economy expands by 10 per cent in nominal terms, the tax collection will grow by 12 per cent. 

Growth in 2018-19 (FY19) had slumped to a five-year low of 6.8 per cent and a 20-quarter low of 5.8 per cent in the January to March quarter of FY19.

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